Business Combinations

Date recorded:

IASB Meeting

IASB identified four aspects of a project on business combinations:

  • Scope and plan for the project
  • Definitions that determine the scope of IAS 22
  • The methods of accounting for business combinations
  • Acquired intangible assets
Scope of the project

Issues could include:

  • The method or methods of accounting for business combinations.
  • Definitions of such terms as business combination, joint ventures, and transactions among entities under common control.
  • Acquired intangible assets other than goodwill.
  • Goodwill. Amortisation and impairment testing.
  • Negative goodwill. Definition, recognition, and amortisation.
  • Acquisition provisions.
  • In process research and development. Is it a recognisable intangible asset and, if not, whether it should be charged as an expense at acquisition or included in goodwill.
  • Improvements. There are some business combinations issues under consideration in the Improvements Project. These could be addressed in this project.
  • Disclosures and transition.


The reason that definitions of the terms business combinations, joint ventures, and transactions among entities under common control are important is because those definitions determine whether particular transactions do or do not come under the scope of IAS 22.

Methods of accounting for business combinations

Three methods under consideration are:

  • purchase method,
  • pooling of interests method, and
  • fresh start method.

Acquired intangible assets

This aspect of the project would focus on intangible assets other than goodwill acquired in a business acquisition.

Points Raised During Board Discussion

Among the points raised during discussion were the following:

  • Further discussion is needed on what a business combination is. Japan will provide cases where the pooling method is believed to be appropriate. Consideration is to be given to all the jurisdictions where work has already taken place.
  • Certain transactions (such as multiple entities roll-ups) might be or they might be included with acknowledgement that purchase accounting is not necessarily the best answer but the accounting for such combinations is to be addressed in the second phase of the project.
  • Some Board members believe that there is a difference between mergers and acquisitions and argued that fresh start accounting may be more appropriate. Even when there is a true combination of equals, a new entity will emerge meaning that carry over (pooling) is not appropriate.
  • Discussion on acquired intangibles focussed upon whether this can be addressed without re-opening IAS 38.
  • It is important to decide what goodwill is in order to decide how to test for impairment. The main issue is whether or not goodwill is an asset. IASB will seek to understand how the FASB reached their answers. FASB will present their rationale at the next meeting. Under the new rules in the US, there will probably be much less goodwill.
  • Board members expressed divergent views on the subject of negative goodwill.
  • Acquisition provisions should be addressed without re-opening all the existing rules on liabilities.
  • There appear to be two ways of interpreting the current IAS with regard to purchaed in-process research and development: either write-off (at least the research bit) or subsume it in goodwill. The project must address this specifically.
  • The project should address the question of what is the appropriate date for valuing the equity for acquisition purposes. SIC 28 also addresses this.
  • The Standing Interpretations Committee is considering reverse acquisitions.
  • The definition of joint control can be made more robust. The AICPA and G4+1 definitions will be considered. Should unanimous consent for decision-making by venturers be a condition?
  • Common control is currently not defined. There was an agreement that common control in IAS 22 involves common control before and after transaction.
  • After considerable discussion on, the Board reaffirmed its tentative view expressed at the June meeting that there should be one method of accounting for all business combinations: the purchase method.
  • Regarding acquired intangible assets, IASB members agreed that these should be recognised, but the key issues were identification and measurement. Among the characteristics for identifying acquired intangibles that the Board discussed were (a) does it meet the definition of an asset and (b) is it either separable from the business or does it result from contractual or legal rights.
  • IAS 22 includes a provision that intangible assets cannot be recognised if this will create negative goodwill. The staff proposed that this be withdrawn as it is inconsistent with asset recognition generally.

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